Much is being made out of the means for acquiring ownership of the daily. It is nothing but plain business restructuring
By Ranjeev C Dubey
The awareness that our judiciary has time and again rescued the nation from impending doom clouds our vision when it comes to gross miscarriages of the due process that routinely litter its path. The much reported National Herald case, in which Congress President Sonia Gandhi, Rahul Gandhi and several others are being prosecuted for conspiracy, criminal breach of trust, misappropriation and cheating is one of the latest examples of a criminal prosecution launched on the flimsiest of basis.
The Gandhis have been accused of offenses that attract a seven-year jail sentence but the underlying facts only reveal, what appears to me, an unexceptional case of business restructuring. This is how it goes.
Three years back, the Congress had decided that they wanted to revive a newspaper deeply loved by Jawaharlal Nehru. National Herald was bankrupt despite large loans, and the party didn’t think that the revival plan was best executed riding on the back of a political platform. That’s a fair assumption with which at least the income tax department agrees—it has issued notice to the Congress threatening to take away its charitable status because the party gave away money (as a loan) to a newspaper airing its political views.
The magistrate thought that political donations are public money “entrusted” to political parties and using it to publish its political view through a “not for profit” company is a criminal breach of trust. That is indeed a strange notion. Political donation comes without strings and there is no “entrustment”. Besides, I will take any politician’s invitation to jump the “public money” hoop only after these righteous rhetorical raconteurs have opened their accounts to the Right to Information Act.
Next, the Congress assigned the loan at a cut price to a purpose-registered not-for-profit company and squared the accounts. If you have ever restructured a sick company, I am sure you have sold a bad debt for a song too. The magistrate is displeased that the debt was sold to a company of which the Gandhis are shareholders. It escapes me how anyone is better qualified than Nehru’s descendants to pursue his ideals. The magistrate’s chief apprehension lay in the ostensible value of these properties regardless that the company was “not for profit”. She assumes that the accused will convert the company back to a normal “for profit” one and misappropriate the money. That, I believe, is akin to prose-cuting someone for purchasing a car because it could kill someone on the road someday.
So what about criminal misappropriation? In the magistrate’s view: if company A acquires a debt from the creditor of company B and converts it into equity, then the directors of the holding company A have acquired the properties of the subsidiary company B. This automatically means that the subsidiary’s properties have been misappropriated by the directors of the holding company whose ‘personal kitties’ are thus filled. Thus, at a stroke, the magistrate has lifted the corporate veil without legal reason, obliterated the distinction between shareholder and professional non-shareholder director, assumed the assets of a subsidiary company are the personal property of the directors of a holding company, and launched a prosecution based on an apprehension of misappropriation that may occur at some time in the uncertain future.
Finally, the magistrate believes this ‘misappropriation’ is dishonest because the conversion of debt to equity caused a wrongful loss to National Herald’s shareholders. National Herald is a registered company. If you get shareholders’ approval, company law allows you can convert debt into equity. Lawyers restructuring businesses commonly render such advice. I have heard of minority shareholders approaching the Company Law Board against dilution, but a third party politician approaching a criminal court?
As a lawyer, I am alarmed at the lack of gravitas and deliberation with which summons have been issued in this case, as I am with so many others. I am even more alarmed when jabbering TV heads talk trash and air prejudice in the name of considered opinion till I, like Jim Morrison, am ready to cancel my subscription to India’s resurrection.
In the main, I am overwhelmed by the idea that some of my hard earned tax payers money will be used to adjudicate on this baseless prosecution that will doubtless end in a whimper of a discharge.
—The author is managing partner of the Gurgaon-based corporate law firm N South